Government pushes gas prices higher, while blaming oil companies
Inside Liberty Watch Today - May 2, 2006

Politics and economics continued to collide last week. On Capital Hill, a Senate committee announced an investigation into taxes paid by major oil companies and asked the Internal Revenue Service for the companies' tax returns. This by the way hasn't been done since the panel asked for Enron's returns. 

The Senate Finance Committee promised "a comprehensive review of the federal taxes paid" by the oil companies on their record profits last year. Republican Senator Charles Grassley from Iowa, who chairs the committee, said "I want make sure the oil companies aren't taking a speed pass by the tax man." 

Montana's Max Baucus thinks "it's relevant to know what the real financial picture is for this industry." Well, I tell you how it is Senator. Exxon Mobil just announced its first quarter results last week. The company made a net profit of $8.4 billion. That's sounds like a bunch and it is. But the company earned it. The fine folks at Exxon found a product people want to buy, refined it and made it available for a price that people would pay. Good for them. 

But, while these Yo-Yo's on the Hill prattle on that they "should better understand the federal tax posture of the industry," it turns out that while Exxon was left with $8.4 billion on sales of just short of $89 billion (note the profit margin of less than 10 percent), the government received $25.8 billion in taxes. 

So, out of $3 gallon of gas, Exxon shareholders end up with 28 cents, while the government ends up with 87 cents. And, Baucus and Grassley have the gall to demand inspection of oil company tax returns. 

Besides last year's energy bill has more than a little to do with causing this spring's spike in gas prices. That energy bill requires that ethanol replace MTBE as an additive in gasoline to meet smog rules in urban areas during the summer months. Of course, the ethanol requirement is essentially pork for the powerful farm lobby, because the stuff is made out of corn, which is grown in places like Senator Grassley's home state of Iowa. The problem is that ethanol producers can't keep up with the demand dictated by government command. Thus, the new requirements combined with the shortages have caused gas prices to jump as we enter the summer driving season. 

Foreign-made ethanol would help the supply situation, but Congress is protecting Grassley's farmers by slapping a 54-cent-per-gallon tariff on ethanol imports. 

Dan Gilligan, president of the American Petroleum Marketers Association of America, believes 15 percent of the increase in the price of gas is due to last year's energy bill. 

Here locally, Senator Bob Beers has called for a permanent repeal of the state gasoline tax. When's the last time an elected official called for the permanent repeal of a tax: especially one that keeps on giving like the gas tax? Beers says there is plenty of money to repair the roads with the state's $300 million per year surplus. Fair enough. But, maybe one of the days he will step outside the government box and call for the roads to be privatized and return tax money to the taxpayers. 

Meanwhile the economics-challenged Assembly Majority leader Barbara Buckley thinks repealing oil company tax breaks will lower fuel costs. Of course, it's impossible to follow her logic, since none was used. Let's see, if oil company costs are increased with more taxes, these companies will in turn pass that cost increase on to the consumer in the form of lower prices at the pump. With higher taxes, oil companies will earn a lower return on investment so they will be encouraged to invest more capital in finding more oil. Cue the "Twilight Zone" theme music. 

Since she chose not to use facts or logic to make her argument, Buckley goes for the over- used emotional tear-jerker "kids" ploy. If budget money is used to build and maintain roads, there will not be enough to continue funding education. If that could only be true: no money for education. Parents could pay for their kids to attend private school or put them to work. Oh happy day. 

If not cooped up during their formative years learning that making a profit is bad and that government is good, maybe future politicians would leave the market alone and allow entrepreneurs to serve customers.




Doug French, Liberty Watch Columnist